Research On On/off-the-Run Yield Spread Of Treasury Bonds

According to the study of foreign literature,on/off-the-run yield spread in most countries are significantly positive,and the view is consistent,that is,liquidity difference is the main reason leading to the on/off-the-run yield spread.Unlike most other countries,there are different views coming from China's existing study on on/off-the-run yield spread.This paper uses the inter-bank bond market data from January 2006 to October 2016 to analyze the characteristics of the on/off-the-run yield spread.By observing the bonds'transaction data in the sample,it is found that the on/off-the-run yield spread with one year and three years to maturity changes from significantly negative to significantly positive.To explore this phenomenon better,this paper uses the method of sub-sample analysis to study the impact factors of the on/off-the-run yield spread from the perspective of non-common factors and common factors.First,this paper uses the statistical grouping method to study the influence of non-common factors in different period on the on/off-the-run yield spread,thus analyzes it at the micro or transaction level.Secondly,by extracting the hidden factor which represents the on/off-the-run yield spread from the CIR model study the influence of common factors on spread in different period,thus analyzes it at the macro or policy level.The empirical results show that the difference in liquidity is the major factor affecting the on/off-the-run yield spread in China over the past decade.In addition,the "disposition effect",the high coupon rate and the difference in issuance may be the reason for the significant negative of the on/off-the-run yield spread in the early period.The decrease of treasury bonds' coupon rate and the rapid increase in the money supply after the financial crisis in 2008 may be the reason why on/off-the-run yield spread changed from significantly negative to significantly positive.